Sysco's profit up but sales volume disappoints

Reuters News Service

Published 5:30 am, Monday, August 16, 2004

Sysco Corp., the largest U.S. distributor of food to restaurants and hospitals, today said quarterly profit rose as an extra week in the period and cost control measures helped offset the higher food prices that were slowing demand.

But the lower-than-expected earnings and the company's comment about continued sales weakness in the current quarter drove the shares down to their lowest level in a year.

The Houston-based company said many of its restaurant-operator customers have cut spending because of an 8 percent increase in prices that have caused slowing demand both from its customers and the consumers they serve. Excluding the extra week in the quarter and the 8 percent higher prices, sales volume was flat, Sysco said.

The company has countered with measures aimed at controlling costs, such as a temporary hiring freeze.

Cutting costs and making its distribution system more efficient have helped Sysco post higher earnings recently, said Jason Whitmer, analyst at FTN Midwest Research. Still the stock has fallen more than 10 percent this year.

"They really need to get that sales number moving," said Whitmer, who rates the stock "buy."

The company posted earnings of $280.6 million, or 43 cents a share, in the 14-week fiscal fourth quarter ended July 3, compared with $242.7 million, or 37 cents, in the 13-week year-earlier quarter. Sales rose 17 percent to $8.14 billion, but would have been up only 8 percent without the extra week.

That 8 percent is down from a 10.8 percent sales increase in the second quarter and 9.9 percent in the third quarter.

Analysts on average forecast 44 cents a share on sales of $8.09 billion, according to Reuters Estimates.

The company said it expects additional costs of 4 cents to 5 cents a share in the current fiscal year related to its redistribution center.

Sysco forecast capital expenditures of $475 million to $500 million for the current fiscal year.

Sysco shares were down $2.29, or 6.9 percent, to $31.15 on Monday afternoon on the New York Stock Exchange. after falling to $30.